Japan’s gasoline imports from South Korea may recover as arbitrage window re-opens

Japan’s gasoline imports from South Korea may recover in June from recent multi-month lows as the arbitrage window has re-opened this week on the back of strong domestic spot prices despite weak global benchmarks, market sources said Friday.

This week, the spread between Japan’s import parity for gasoline from South Korea improved to a three-month high of more than Yen 7,000/kl ($10.15/b) as the domestic spot gasoline price fell to a smaller degree, to the Mean of Platts Singapore RON 92 gasoline assessments, according to S&P Global Platts data.

“We understand that South Korea-Japan arbitrage window has reopened lately, following the recent drop in MOPS (92 RON gasoline assessments),” a Japanese trader said. “However, we have to watch this carefully to see whether the current trend is sustainable.”

Another Japanese trader also agreed that gasoline inflows from South Korea may increase.

“Certainly imported [gasoline] cargoes may increase if the current healthy import parity stays going forward,” the second Japanese trader said.

Over March-April, the arbitrage window for Japan’s gasoline imports from South Korea was almost closed. Gasoline exports from South Korea to Japan dropped to an 8-month low of 90,575 kl, or 569,699 barrels in March, according to Korea Customs Service statistics.

The import parity price is calculated at a premium to MOPS 92 RON gasoline assessments, plus freight costs for an SR vessel on the South Korea-Japan route as well as insurance and import taxes.

DOMESTIC VERSUS SINGAPORE PRICES

Japan’s domestic gasoline rack prices in the Hanshin region in the west slid to Yen 64,500/kl on Thursday, down Yen 1,200/kl or 1.83% from April 26, just before the country began its 10-day long Golden Week national holidays to May 6, Platts data showed.

Typically imports from South Korea impact the Hanshin area most easily in Japan due to logistics such as available tank space and berthing opportunities. A possible increase in the inflow of gasoline from South Korea also occurs as Japan heads into its peak refinery turnaround season.

The fall in the domestic gasoline price was small, compared with the drop in MOPS 92 RON gasoline assessments, which had fallen $8.13/b or 10.07% to $72.62/b during the same period, according to Platts data.

In tandem with the falling MOPS 92 RON gasoline assessments, Japan’s import parity for gasoline imports from South Korea also fell Yen 6,777/kl or 10.59% to Yen 57,225/kl during the same period.

Rack oil products are those that are transported by refiners and other independent suppliers over land by tank lorries — loaded from either refinery tanks or secondary tanks outside the refinery.

Local refiners set their weekly wholesale products prices based on movements in benchmark Dubai/Oman crude markers. For example, JXTG Nippon Oil & Energy and Idemitsu Kosan’s weekly wholesale price differentials for main clean products, namely gasoline, kerosene, gasoil and A-fuel oil — a blend of gasoil and fuel oil in a 90:10 ratio — generally follow the same.

Showa Shell, which became a wholly-owned subsidiary of Idemitsu Kosan on April 1, is now following the same price movement as Idemitsu Kosan, following their consolidation last month.
Source: Platts